Welcome to the When Money Destroys Nations newsletter covering money printing trends, hyperinflation storm warnings, monetary system transition, the decline of dollar supremacy, cryptocurrency, and precious metal trends.
We are coming off a great first two months of the launch of our book, When Money Destroys Nations. Globally, money printing is becoming a serious consideration for most countries that are indebted and Zimbabwe’s lesson has never been more applicable.
You’re part of a growing group of people steadily educating themselves about the real consequences of money printing and how the global monetary system is evolving with each passing day. We won’t spam you. If something big is happening that we think you should know about, we’ll let you know, but normally we’ll only send around one or two emails per month. We welcome your feedback and questions – tell us what you want to know about in the fascinating world of money printing and monetary systems. And remember, if you find it’s not for you, you can unsubscribe from the mailing list quickly and easily at the bottom of this email.
Japan goes over the money printing hill
In the last month, Japan announced an increase to its money program – printing money at a rate of ¥80 trillion per year. To put this into context, that is over ¥620 000 ($5 300) printed per person in Japan every year! If only life were as simple as printing money whenever we needed it.
The ridiculous aspect of these statistics are that the newly created money doesn’t go to the population. This money goes to special interest groups in the finance sector – but mostly, it goes to paying off the debts of the Japanese government. You and I work hard for every dollar, rand or yen we make and these guys go ahead and create it out of nothing. Tragically, the largest holder of Japanese debts are pensioners – people who have saved hard all their lives only to receive money created out of nothing in return. In Zimbabwe, pensioners who had saved lost everything. Interview after interview, I heard the most heart-breaking stories of how pensioners suffered.
Bank of Japan’s governor Haruhiko Kuroda has ominously said that he wants to double the amount of Japanese money in circulation in the next two years. I wonder what goes through his mind as he sleeps at night. With newly printed money, the Bank of Japan and the Japanese government can purchase real goods and services whilst passing on the cost of this to the poor and to pensioners who diligently save all their lives. The reality is that nothing comes for free. And someone has to pay for these huge scale money printing programs. Sensing the problems this will create, Japan’s government pension fund that manages the retirement money of millions of government employees, announced that it will begin selling hundreds of billions of yen worth of government bonds and buying stocks. When the government doesn’t trust its own bonds, you know debts are unrepayable.
Japan’s problems are only starting. With debts of over ¥1 100 000 000 000 000 (¥1.1 quadrillion), the Japanese government has few options available to it. Add to that social security obligations of over ¥1 quadrillion, and the equivalent net amount owed per citizen is ¥15 million ($133,000) each, or nearly half a million US dollars’ worth of debt per family.
Japan is on a path very similar to what happened in Zimbabwe. Watch this space. The economics of money printing cannot be denied.
The Swiss and their Love of Sound Money: Why the “Save Our Swiss Gold” referendum is important
On the 30 November, the Swiss public are voting on a referendum known as the Save Our Swiss Gold initiative. The referendum is looking to require the Swiss National Bank to hold gold equivalent to a minimum of 20% of the base currency in circulation. The Swiss National Bank would also need to repatriate its gold holdings from other countries over five years and be restricted from selling its gold going forward. Here are three high level reasons why the Swiss referendum on gold is important.
Firstly, this signals a major shift in the global approach to reserve currencies. This is the first time in decades that a major economy is seriously investigating providing a gold backing to its currency, albeit only 20% of bank reserves. It nonetheless would signal a move away from US dollars and euros as a reserve currencies, and provides an interesting insight into the potential movement of other currencies in this direction.
Secondly, the Swiss are concerned that other central banks may not be as reliable at keeping its gold compared to the Swiss National Bank and would look to repatriate about 300 tons of gold from foreign central banks. This past week, the Dutch central bank repatriated over 122 tons of gold from the vaults of the Fed in New York. Germany is in process of doing the same, repatriating up to 50 tons a year. On Monday, French opposition leader (and potential next president of the country), Marine le Pen demanded that France repatriate its gold as well. There is ample evidence to suggest that there is less gold in the major central bank vaults than is reported and mass redemptions of gold could cause others to do the same – sparking a similar gold run as was seen in 1971 with the collapse of the Bretton Woods financial system.
Third, for the Swiss National Bank to fulfil the mandate of the referendum, it would need to purchase at current prices over 1600 tons of gold. However the SNB would have 5 years to implement the gold target. Assuming 5% quarterly growth in the base money, and all other things held constant the central bank would need to purchase approximately 1000 tons per year for the next 5 years. This represents a major increase in demand for gold – about 25% of total annual global demand. This could cause an increase in the price of gold and may encourage other central banks to consider doing the same.
What could this mean for gold?
A yes-vote could cause an increase in the price of gold, whilst a no-vote would likely not impact the gold price significantly. For those who have appetite for exposure to the gold price, a yes-vote would be a welcome development.
Even if the referendum passed a yes-vote the central bank would still be able to print money to purchase its gold and euros – giving it the ability to maintain the currency peg and to maintain the requirements of the referendum. The referendum would therefore be unlikely to affect the exchange rate value of the Swiss franc.
The latest polls are leaning in the direction of a no-vote, but we are certainly not ruling out the possibility of a yes vote come Sunday 30 November.
More to come
That’s all for this edition, but the global money printing news is coming on thick and fast these days so there will no doubt be a lot to talk about next time. We’ll cover other aspects of money printing in our next few emails – including what’s happening in the US, Europe, Venezuela and other countries. Like I said earlier watch this space. As countries around the world are printing money, it will have very real consequences on you and I and we all need to be prepared for major shifts in economies and in how commerce is done.
One of the questions we get a lot is: how should we respond to money printing? It’s a great question since it personalises all these theories. We’ll look to answer these questions and more in forthcoming editions. We’d love to hear from you – let us know what other questions you have.
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Author, When Money Destroys Nations